Intrinsic value of NewMarket - NEU

Previous Close

$418.39

  Intrinsic Value

$332.78

stock screener

  Rating & Target

sell

-20%

  Value-price divergence*

+26%

Previous close

$418.39

 
Intrinsic value

$332.78

 
Up/down potential

-20%

 
Rating

sell

 
Value-price divergence*

+26%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NEU stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -4.30
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
Revenue, $m
  2,049
  2,147
  2,251
  2,360
  2,474
  2,595
  2,721
  2,855
  2,995
  3,142
  3,296
  3,459
  3,630
  3,809
  3,998
  4,196
  4,404
  4,622
  4,852
  5,093
  5,346
  5,612
  5,892
  6,185
  6,493
  6,817
  7,157
  7,514
  7,889
  8,282
  8,696
Variable operating expenses, $m
 
  1,789
  1,875
  1,966
  2,061
  2,161
  2,267
  2,378
  2,494
  2,617
  2,746
  2,881
  3,023
  3,172
  3,329
  3,494
  3,668
  3,850
  4,041
  4,242
  4,452
  4,674
  4,907
  5,151
  5,408
  5,677
  5,960
  6,258
  6,570
  6,897
  7,242
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,687
  1,789
  1,875
  1,966
  2,061
  2,161
  2,267
  2,378
  2,494
  2,617
  2,746
  2,881
  3,023
  3,172
  3,329
  3,494
  3,668
  3,850
  4,041
  4,242
  4,452
  4,674
  4,907
  5,151
  5,408
  5,677
  5,960
  6,258
  6,570
  6,897
  7,242
Operating income, $m
  363
  359
  376
  394
  413
  433
  455
  477
  500
  525
  551
  578
  607
  637
  668
  702
  736
  773
  811
  852
  894
  938
  985
  1,034
  1,086
  1,140
  1,197
  1,256
  1,319
  1,385
  1,454
EBITDA, $m
  408
  406
  425
  446
  468
  490
  514
  539
  566
  594
  623
  654
  686
  720
  755
  793
  832
  873
  917
  962
  1,010
  1,060
  1,113
  1,169
  1,227
  1,288
  1,352
  1,420
  1,490
  1,565
  1,643
Interest expense (income), $m
  19
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  60
  64
  68
  72
  76
  81
  86
  91
  96
  102
  108
  114
  120
  127
Earnings before tax, $m
  343
  339
  355
  371
  389
  407
  426
  446
  467
  489
  513
  537
  563
  590
  619
  649
  680
  713
  747
  784
  822
  862
  904
  948
  995
  1,044
  1,095
  1,149
  1,205
  1,264
  1,327
Tax expense, $m
  100
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  152
  159
  167
  175
  184
  192
  202
  212
  222
  233
  244
  256
  269
  282
  296
  310
  325
  341
  358
Net income, $m
  243
  248
  259
  271
  284
  297
  311
  326
  341
  357
  374
  392
  411
  431
  452
  473
  496
  520
  546
  572
  600
  629
  660
  692
  726
  762
  799
  839
  880
  923
  969

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  192
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,416
  1,283
  1,345
  1,410
  1,478
  1,550
  1,626
  1,705
  1,789
  1,877
  1,969
  2,066
  2,168
  2,275
  2,388
  2,506
  2,631
  2,761
  2,898
  3,042
  3,194
  3,353
  3,520
  3,695
  3,879
  4,072
  4,275
  4,489
  4,712
  4,948
  5,194
Adjusted assets (=assets-cash), $m
  1,224
  1,283
  1,345
  1,410
  1,478
  1,550
  1,626
  1,705
  1,789
  1,877
  1,969
  2,066
  2,168
  2,275
  2,388
  2,506
  2,631
  2,761
  2,898
  3,042
  3,194
  3,353
  3,520
  3,695
  3,879
  4,072
  4,275
  4,489
  4,712
  4,948
  5,194
Revenue / Adjusted assets
  1.674
  1.673
  1.674
  1.674
  1.674
  1.674
  1.673
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
  1.674
Average production assets, $m
  459
  481
  504
  529
  554
  581
  610
  639
  671
  704
  738
  775
  813
  853
  895
  940
  986
  1,035
  1,087
  1,141
  1,198
  1,257
  1,320
  1,385
  1,455
  1,527
  1,603
  1,683
  1,767
  1,855
  1,948
Working capital, $m
  542
  367
  385
  404
  423
  444
  465
  488
  512
  537
  564
  591
  621
  651
  684
  717
  753
  790
  830
  871
  914
  960
  1,007
  1,058
  1,110
  1,166
  1,224
  1,285
  1,349
  1,416
  1,487
Total debt, $m
  507
  551
  599
  648
  700
  755
  813
  873
  937
  1,004
  1,075
  1,149
  1,226
  1,308
  1,394
  1,484
  1,579
  1,678
  1,783
  1,892
  2,008
  2,129
  2,256
  2,389
  2,530
  2,677
  2,832
  2,994
  3,165
  3,344
  3,532
Total liabilities, $m
  933
  977
  1,025
  1,074
  1,126
  1,181
  1,239
  1,299
  1,363
  1,430
  1,501
  1,575
  1,652
  1,734
  1,820
  1,910
  2,005
  2,104
  2,209
  2,318
  2,434
  2,555
  2,682
  2,815
  2,956
  3,103
  3,258
  3,420
  3,591
  3,770
  3,958
Total equity, $m
  483
  305
  320
  335
  352
  369
  387
  406
  426
  447
  469
  492
  516
  542
  568
  597
  626
  657
  690
  724
  760
  798
  838
  879
  923
  969
  1,018
  1,068
  1,122
  1,178
  1,236
Total liabilities and equity, $m
  1,416
  1,282
  1,345
  1,409
  1,478
  1,550
  1,626
  1,705
  1,789
  1,877
  1,970
  2,067
  2,168
  2,276
  2,388
  2,507
  2,631
  2,761
  2,899
  3,042
  3,194
  3,353
  3,520
  3,694
  3,879
  4,072
  4,276
  4,488
  4,713
  4,948
  5,194
Debt-to-equity ratio
  1.050
  1.810
  1.870
  1.930
  1.990
  2.050
  2.100
  2.150
  2.200
  2.250
  2.290
  2.340
  2.380
  2.420
  2.450
  2.490
  2.520
  2.550
  2.580
  2.610
  2.640
  2.670
  2.690
  2.720
  2.740
  2.760
  2.780
  2.800
  2.820
  2.840
  2.860
Adjusted equity ratio
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  243
  248
  259
  271
  284
  297
  311
  326
  341
  357
  374
  392
  411
  431
  452
  473
  496
  520
  546
  572
  600
  629
  660
  692
  726
  762
  799
  839
  880
  923
  969
Depreciation, amort., depletion, $m
  45
  47
  49
  52
  54
  57
  60
  62
  66
  69
  72
  75
  79
  83
  87
  91
  96
  101
  106
  111
  116
  122
  128
  135
  141
  148
  156
  163
  172
  180
  189
Funds from operations, $m
  407
  295
  308
  323
  338
  354
  371
  388
  407
  426
  446
  468
  490
  514
  539
  565
  592
  621
  651
  683
  716
  751
  788
  827
  867
  910
  955
  1,002
  1,051
  1,103
  1,158
Change in working capital, $m
  54
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  67
  71
Cash from operations, $m
  353
  278
  291
  304
  318
  333
  349
  365
  383
  401
  420
  440
  461
  483
  506
  531
  557
  584
  612
  642
  673
  706
  740
  777
  815
  855
  897
  941
  987
  1,036
  1,087
Maintenance CAPEX, $m
  0
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
  -96
  -101
  -106
  -111
  -116
  -122
  -128
  -135
  -141
  -148
  -156
  -163
  -172
  -180
New CAPEX, $m
  -143
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -80
  -84
  -88
  -93
Cash from investing activities, $m
  -143
  -67
  -70
  -73
  -77
  -81
  -84
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125
  -131
  -138
  -145
  -152
  -160
  -168
  -176
  -185
  -194
  -204
  -213
  -224
  -236
  -247
  -260
  -273
Free cash flow, $m
  210
  211
  221
  231
  241
  252
  264
  276
  289
  303
  317
  332
  347
  364
  381
  400
  419
  439
  460
  482
  506
  530
  556
  583
  611
  641
  672
  705
  740
  776
  814
Issuance/(repayment) of debt, $m
  11
  44
  47
  50
  52
  55
  58
  61
  64
  67
  70
  74
  78
  82
  86
  90
  95
  99
  105
  110
  115
  121
  127
  134
  140
  147
  155
  162
  171
  179
  188
Issuance/(repurchase) of shares, $m
  -36
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -27
  44
  47
  50
  52
  55
  58
  61
  64
  67
  70
  74
  78
  82
  86
  90
  95
  99
  105
  110
  115
  121
  127
  134
  140
  147
  155
  162
  171
  179
  188
Total cash flow (excl. dividends), $m
  175
  256
  268
  280
  294
  307
  322
  337
  353
  370
  387
  406
  425
  446
  467
  490
  513
  538
  564
  592
  621
  651
  683
  716
  751
  788
  827
  868
  910
  955
  1,002
Retained Cash Flow (-), $m
  -95
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
Prev. year cash balance distribution, $m
 
  192
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  434
  253
  265
  277
  290
  304
  318
  333
  349
  365
  383
  401
  420
  440
  462
  484
  507
  532
  558
  585
  613
  643
  675
  708
  742
  779
  817
  857
  899
  944
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  416
  232
  231
  228
  225
  220
  215
  208
  200
  192
  182
  171
  160
  148
  135
  123
  110
  98
  86
  74
  63
  53
  44
  36
  29
  23
  18
  13
  10
  7
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

NewMarket Corporation is a holding company. The Company is the parent company of Afton Chemical Corporation (Afton), Ethyl Corporation (Ethyl), NewMarket Services Corporation (NewMarket Services), and NewMarket Development Corporation (NewMarket Development). The Company operates through petroleum additives segment, which is primarily represented by Afton. The Company manufactures chemical components that are selected to perform one or more specific functions and combine those chemicals with other chemicals or components to form additive packages for use in specified end user applications. The petroleum additives product applications include lubricant additives and fuel additives. The Company's All other category includes the operations of the TEL business, as well as contract manufacturing and services performed by Ethyl. The Ethyl plant facility is located in Houston, Texas. It is involved in terminal operations related to TEL and other fuel additives.

FINANCIAL RATIOS  of  NewMarket (NEU)

Valuation Ratios
P/E Ratio 20.4
Price to Sales 2.4
Price to Book 10.3
Price to Tangible Book
Price to Cash Flow 14
Price to Free Cash Flow 23.6
Growth Rates
Sales Growth Rate -4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 12.6%
Cap. Spend. - 3 Yr. Gr. Rate 19.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 105%
Total Debt to Equity 105%
Interest Coverage 19
Management Effectiveness
Return On Assets 19%
Ret/ On Assets - 3 Yr. Avg. 19.3%
Return On Total Capital 26%
Ret/ On T. Cap. - 3 Yr. Avg. 27.3%
Return On Equity 55.8%
Return On Equity - 3 Yr. Avg. 53.9%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 33.2%
Gross Margin - 3 Yr. Avg. 31.1%
EBITDA Margin 19.9%
EBITDA Margin - 3 Yr. Avg. 18.5%
Operating Margin 17.7%
Oper. Margin - 3 Yr. Avg. 16.6%
Pre-Tax Margin 16.7%
Pre-Tax Margin - 3 Yr. Avg. 15.7%
Net Profit Margin 11.9%
Net Profit Margin - 3 Yr. Avg. 11%
Effective Tax Rate 29.2%
Eff/ Tax Rate - 3 Yr. Avg. 30%
Payout Ratio 31.3%

NEU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NEU stock intrinsic value calculation we used $2049 million for the last fiscal year's total revenue generated by NewMarket. The default revenue input number comes from 2016 income statement of NewMarket. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NEU stock valuation model: a) initial revenue growth rate of 4.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for NEU is calculated based on our internal credit rating of NewMarket, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of NewMarket.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NEU stock the variable cost ratio is equal to 83.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NEU stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.8% for NewMarket.

Corporate tax rate of 27% is the nominal tax rate for NewMarket. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NEU stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NEU are equal to 22.4%.

Life of production assets of 10.3 years is the average useful life of capital assets used in NewMarket operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NEU is equal to 17.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $483 million for NewMarket - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 11.914 million for NewMarket is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of NewMarket at the current share price and the inputted number of shares is $5.0 billion.

RELATED COMPANIES Price Int.Val. Rating
IOSP Innospec 57.00 1,108.18  str.buy
CDTI Clean Diesel T 2.00 0.14  str.sell
XOM Exxon Mobil 80.07 9.82  str.sell

COMPANY NEWS

▶ NewMarket posts 2Q profit   [03:18PM  Associated Press]
▶ ETFs with exposure to NewMarket Corp. : May 3, 2017   [May-03-17 04:09PM  Capital Cube]
▶ NewMarket Corporation Declares Quarterly Dividend   [Apr-27-17 05:01PM  Business Wire]
▶ NewMarket posts 1Q profit   [Apr-26-17 07:01PM  Associated Press]
▶ These 4 Commodity Stocks Are Showing Bullish Chart Patterns   [Mar-14-17 05:30AM  TheStreet.com]
▶ 14 Dividend Stocks Rewarding Shareholders With A Raise   [Feb-27-17 11:49AM  Insider Monkey]
▶ NewMarket posts 4Q profit   [Jan-31-17 05:47PM  Associated Press]
▶ Kirkland CEO: Newmarket Deal to Create Significant Value   [Sep-29-16 06:15PM  at Bloomberg]
Financial statements of NEU
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.